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I realise Sachin's retirement is the hot topic right now. But I am a bit surprised that no one is worried about the ticking financial time bomb that is about to explode in a week.

The US government has gone into limp mode, they have shutdown except for the essential services. That is because their latest budget didn't pass and they don't have enough money to run the government.

How did this happen?

A faction of Republican party, who are known as Tea-baggers, have stopped the budget from passing because they didn't get their way in the election. They want to defund a medical reform program (Obamacare) that was passed by the senate long back. For details, see the following video.

http://www.youtube.com/watch?v=Zm989d7FjD0

How will it affect us?

US Government will run out of money on Oct 17th, that is next week. After that they won't even have the funds to service their debt. US has 17th trillion dollar debt and the interest they have to pay is substantial. China and Japan itself hold 8% and 6% of that debt.

I don't understand the currency market well enough to speculate correctly. But I am told dollar might crash if the debt is not serviced. If dollar crashes, major debt holders like China/Japan may start dumping the dollar and switch to Euro or other stable currency. This will make the dollar crash faster. The whole world economy will have a meltdown.

This is a very precarious situation for the whole world, not just USA. All this because of a bunch of senators don't want to pass medical reform in US.

Comments....

Oh well, this is not the first time it is happening. There was debt ceiling debate last year too and last year too there were predictions of doom.
The US government is more of an industry than a democracy. Last minute deals will be made to ensure that it remains business as usual.

What was the last time 44% of the US government employees were furloughed (on unpaid leave)?

http://labs.enigma.io/shutdown2013/

17 years back. I think it lasted for a week that time.

The market does not seem to share the feeling of doom:
http://www.bloomberg.com/news/2013-1...-optimism.html

I think the Republicans are already softening their stance and have proposed a plan to avoid the US debt default. I think the ratings of both the parties have fallen so low that they cannot risk a furlough and US default.

This raising the debt ceiling is not the solution, it in fact is the problem. It may seem like a temp solution to tide over but its really adding to the problem. They really need to cut their spending, not an easy task considering this generation has gotten used to the "good life" (on borrowed money).

If I was in forex, I would sell all my dollars right now, and buy a whole lot more in ten days.
I wonder how the sterling pound will behave.

No, you are just referring to the last shutdown. That resulted in only $400 million in unpaid salary, they didn't shutdown to this extent. This one has already approached $ 2 billion in unpaid salary. Check the link I provided, it shows the creeping unpaid salary.

That is for a very good reason. The moment they talk about doom, it will happen faster. Stock market run on speculations and confidence. The moment they openly express their fear, the investor confidence will tank and market will take a dive. They have no choice but put up a brave face.

LOL. If that were the case, the markets would never go down.
In stock market, there are as many people betting on the market going down as those betting on it going up. If you read the article, you will know why the market went up.

Thanks for sharing. Can anyone help me understand how come the department of veterans affairs needs 3.3 lakh employees (95% critical!!) - the number of critical employees is as much as the department of defense. That is like indian rail levels of (over)employment :D

What am I missing?

That said, it should be interesting. US has humongous levels of debt, much more than Spain (94%) which long got into trouble. US continues to spend its way. Me likes.

May be they are referring to pensioners... can't see why they will need many employees.

If dollar crashes by 50% ->

Glass half full: Petrol will be priced at Rs. 35 per litre, Gold will be priced at Rs. 15,000 per gram. Because all commodities are priced in dollars.

Glass half empty: All software engineers salaries will be slashed by half. Because a significant part of software company earnings are priced in dollars.

Stock up gold and commodities if dollar crisis is about to happen.
What is my opinion?
Its not gonna happen.

There are far too many vested interest of those in power, and they will not let dollar decay (even though it should've long time ago during the sub prime crisis - which was much before the Lehman bros bust).

Also each govt has to be pro-public. US public will kill their govt if they declare bankrupcy and their currency null & void.